Wednesday, 11 May 2016

Budget speech in Parliament today - New entrepreneur fund has potential but business must demand concessions in return

Watch the debate on YouTube here - scroll through to halfway through the video, this is where the debate begins, after the Energy debate.

Chairperson, Minister, Deputy Minister, members of the portfolio committee, honourable members, visitors in the gallery - good afternoon.

First let me acknowledge and welcome my guests, Vuyisa Qabaka and his group of young mentees from Nyanga East. Vuyisa, through his example as a successful entrepreneur and commitment to building the next generation of entrepreneurs, is showing the way towards a more prosperous South Africa. Malibongwe!

Chairperson, the Department of Small Business Development is approaching its second birthday. At our first EPC I portrayed our minister as Cinderella and urged her to avoid the clutches of her ugly sisters, Ministers Davies and Patel, whose antagonism to business is well known. Rather, she should be outspoken as the first truly business-friendly minister in the cabinet.

Then, a year ago, Minister Zulu had seemed to fall into a deep sleep from which we in the DA were desperately trying to wake her up. Our Sleeping Beauty minister was asleep on the job while her department drifted along with no clear leadership, purpose or strategy.                                                                                               
This, against a backdrop of the falling contribution of SMEs to the economy as reported by Stats SA.

A further year later we are mystified why her department is still so ineffectual and has barely made an impact on the economy. This, with 8,9 million people unemployed and small businesses continuing to suffer from over-regulation and un-kept promises.

Meanwhile, Minister Zulu allowed herself, seemingly with great enthusiasm, to be placed in the role of chief government defender and Zuma cheerleader rather than doing her job by leading the charge to unshackle small businesses from a web of regulations and red tape.

Why is Minister Zulu defending the indefensible to Parliament, first in the Al-Bashir debate then in the President Zuma no-confidence debate?

Does it instil confidence in the business community when our Minister of Small Business Development provides political cover for one President who’s a fugitive from justice and another who refuses to have his day in court?

But delve a little deeper and some answers emerge. Your see, Chairperson, the fairy-tale land inhabited by our Minister and her cabinet colleagues is not some random wonderland.            

Whilst the Brothers Grimm have given us Cinderella and Sleeping Beauty, events of the past few months have revealed a more sinister co-scripting team: the Brothers Gupta, whose attempts to control the state know no bounds.

It would be a travesty if the Grimm Guptas are found to be deflecting state resources and depriving the Minister and her department of the means to do its job.

Why is the National Gazelles Programme in the Minister’s department struggling to get R100 million to support small business while the DTI’s Black Industrialists Programme has been promised R21 billion?

Perhaps the answer is that small business is small pickings to the Guptas, while juicy contracts with SOEs through carefully chosen and pliable black industrialists are far more appealing.

On Monday evening President Zuma announced the formation of an entrepreneur fund, the outcome of one of the three task teams established by business and government in February to boost growth and avoid a ratings downgrade.                                               

The DA has called for the formation of such a fund for the past three years. We are happy government and business are finally listening. Initial funding of up to R3 billion will be injected on a 50:50 basis and is targeting high-growth businesses like the Gazelles.

The fund is being set up under the watchful eye of Finance Minister Gordhan, and we hear will be private-sector driven thus bi-passing Minister Zulu. This raises questions of relevance regarding the Department’s programmes and how they will interact with the fund.

An examination of their performance over the past year, and projected impact in 2016/17, reveals just how insignificant the department’s programmes are to stimulating growth and creating jobs.

This is because Minister Zulu’s department’s driving motivation is poverty alleviation, not promoting enterprise; redistribution, not growth. Want, not opportunity.

Which is not to say poverty alleviation, redistribution and supporting the needy are unimportant. They just should not be Minister Zulu’s priority.

So how does her Department measure up?                                          

The programme review released in November recommended it adopt a broad, facilitative focus instead of its current deep, execution focus. With its small budget of R1,3 billion, the scope for making an impact on the ground where it counts is very limited.

Starting with the smallest part of the budget, support for cooperatives, the Department has admitted to the committee it has no strategy at all. Cooperatives can play an important role in our economy, particularly in rural areas, and we urge Minister Zulu to address this issue.

Turning to Sefa, of its R542 million projected 2016/17 disbursements, roughly 10% will be spent on funding 46 000 micro and informal enterprises, supporting 69, 000 jobs – that’s 1 and a half jobs per business financed. In a sector employing up to 3 million people, this is a drop in the ocean.

40% of Sefa’s budget will be lent directly to 163 SMEs, creating 817 jobs. 817 jobs, created by the country’s flagship small business finance agency! It’s a pitiful number, roughly 1 000 times less than the NDP expects South Africa to create every year until 2030. 

What’s just as worrying is that on historic performance, 58% of these loans to SMEs will not be repaid. Meaning the businesses they are funding are either going bust or the money is being misused.

Sefa’s sister agency, Seda, is equally ineffective. Consuming half the Department’s entire budget, or R663 million, it measures impact by the number of businesses supported, not by their long term growth and survival rates. Its strategic objectives are to increase this and that but not by any measurable metric.

This box-ticking approach fails to measure turnover, profit, jobs created, taxes paid, patents registered, exports achieved etc. – in other words, things that are tangible and making a real contribution to the economy.

What is depressing is that the DA and the Portfolio Committee have been saying this for two years, repeatedly. But nothing changes.

Perhaps this is because Seda has been headless for this entire period and still does not have a permanent CEO. No organisation can perform without leadership and direction. Minister Zulu has yet to respond to my call for her to urgently rectify this intolerable situation.                                                                                                    
A year ago the DA advocated that Seda and Sefa be merged to create a single point of entry for small business support at a national level. This was supported by the programme review.

Now, with the formation of the new entrepreneur fund, a better solution could be to disband them altogether and re-direct the funds to the new entity. I am sure Minister Gordhan is keen to avoid an additional burden on the fiscus and any savings in wasteful government expenditure must be welcomed.

Through a diligent mix of grant, loan and equity finance, backed up by mentorship support, and widely distributed through approved retail channels, the new fund can have a catalytic impact.

It can play a role in the informal and micro enterprise sector by funding badly needed infrastructure.

It can support promising start-ups as well as high-growth potential businesses, to stimulate the entire entrepreneur pipeline.

Just as important, it can help big companies integrate small business into their supply chains by providing working capital.                      

The DA has high hopes that big business will get firmly behind it. It must not simply be co-opted by government, but in return demand root and branch reform of the regulatory environment and labour market to reduce the cost of doing business.

A growing and inclusive economy will not come from throwing money at SMEs and hoping some will stick. It will come from targeted lending and equity investment, opening up market linkages to new and innovative suppliers so improving competitiveness in these sectors.

A radically transformed economy is more likely to emerge from this approach than an obsession with funding ineffective state entities. These are open to abuse and capture by cronies like the Grimm Guptas or else provide protected employment for useless cadres.

It is time for Minister Zulu and her cabinet colleagues to enter the real world and leave their fairy-tale world of the developmental state far behind.    

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